VDC: NFC Adoption Will Be Slower Than Expected

Venture Development Corporation has released a report on the emerging market for near field communication, or NFC. The research firm has also published a research note that highlights a few of the key findings, recapped in this article.

March 3, 2008—Venture Development Corporation (VDC) of Natick, Massachusetts, has released a report on the emerging market for near field communication, or NFC. The research firm has also published a research note that highlights a few of the key findings.

While bullish on the long term prospects for NFC, VDC argues that in the near term the technology will see slower adoption than many expect and hope for. The firm actually draws a comparison to adoption of RFID, on which NFC is based. "Market adoption of NFC will likely follow a progression similar to RFID," reads the research note. "And that means market development is likely to be slower and more niche oriented than most NFC investors and adopters would prefer."

There are three primary hurdles to adoption, according to VDC:

Lack of supporting infrastructure

Complex ecosystem of stakeholders

Standards

The first hurdle, insufficient infrastructure, essentially means that there are still very few NFC components and devices in the market, either at the enterprise or consumer level. Enterprises are wary of rolling out more NFC applications and infrastructure because so few consumers have NFC-enabled devices and handsets, while consumers are not drawn to NFC-enabled devices and handsets because the opportunities to use NFC applications are so few. This frustratingly circular dynamic is the classic chicken-and-egg dilemma that challenges so many emerging technology ecosystems, including RFID.

As for the complex NFC ecosystem, this problem has been reported on widely. An uncommon variety of stakeholders must be involved to make widespread NFC adoption a reality: phone manufacturers, network operators, card issuers, public transportation companies, contactless transportation ticketing providers, payment processors, media vendors, and merchants and retailers, among others. These stakeholders must all vie with one another for a "slice of the pie", as well as figure out who accepts certain responsibilities like consumer support issues. "There are a host of different companies involved in the NFC value chain, each with their own interests, roles, and business models," writes VDC. "There is much uncertainty as to how a globally accepted NFC business model will be defined and implemented." For more on this, see RFID Forum at MIT Discusses the Future of NFC.

On standards, VDC acknowledges that the NFC Forum has been active in standards development, but argues that there is still much to do. VDC also believes that one-size-fits-all standards might not be the best approach, and that standards focused on particular applications and verticals (healthcare, retail, etc.) might be required.

On that point, the firm believes that NFC may take root first in niche vertical applications rather than hypervolume consumer applications like contactless payment. Niche applications require a smaller infrastructure footprint, the stakeholders are fewer, and the value proposition is clearer. Here again, there are strong parallels between RFID and NFC adoption. While the initial hype around RFID was focused ambitiously on the open loop supply chain, actual adoption has occurred in much smaller, easier to control closed loop applications. "Showing similar evolution to RFID, the high-volume/high-potential opportunities will most likely not be the pioneering applications," indicates VDC.